Herc stocks (HRI) is in the equipment rental business for customers who want to build or repair something, explains small-cap expert Tom Bishop, Editor of BI research.
It rents a wide variety of different boom / crane equipment, forklifts and other material handling equipment, scissor lifts, all types of earth moving machinery, road construction machinery, pumps, fans, all types of trucks and trailers, tools, generators – even equipment for film production and TV shows and for the implementation of major events.
Herc’s Q1 results were buffeting. Analysts were looking for $ 0.25 for the seasonally weak first quarter (up from $ 0.04 in the COVID-impacted first quarter of last year), and the company scored on one Revenue of $ 454 million a whopping $ 1.09, a record Q1 and a 336 percent upside surprise.
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And the company noted on the conference call that since Q1 is the weakest season of the year, “things won’t get any worse in Q2 through Q4.” So the hit of $ 0.84 in the first quarter only adds to the previous consensus of $ 4.30 for the year, which has now increased to $ 6.17 (or 105% growth) since we will probably increasingly, but not completely, reflect COVID in the rear view over the course of the year.
But wait, the consensus is up an astonishing 43% – but the stock is up “only” 18%. So we could have a little more upside here. Adjusted EBITDA increased 25% and the EBITDA margin increased 680 basis points from 40.7% in the first quarter and only gets better after the seasonally slowest quarter of the year.
Rental and used equipment prices are rising, margins are improving, Pro Solutions is growing double digits, and the entertainment industry has come back heavily after dipping to near zero during the worst of the times.
There is a great demand for filmed entertainment that has gone from headwinds to nice tailwinds. Both the CEO and CFO confirmed that “it feels like the beginning of the next upward cycle”.
The story goes on
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So all is well here and the stock has risen over $ 17 since our recommendation last issue. Meanwhile, the surprise in the first quarter and the surge in consensus fueled a rise in the BI rank from 10.7 to 12.3. Accordingly, HRI is still a “buy”.
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